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November 2010

Nov 28, 2010


Partner Compensation Metrics – What Is Important – What Matters

Question:

I am the managing partner of a 14 attorney law firm located in Nashville, Tennessee. We have 8 equity partners. The firm represents business and other institutional clients and handles transactional work as well as litigation. Each partner over the years has accumulated "partnership interest" percentages and these interests are used totally to determine annual compensation as well as ownership in the firm. The only numbers that matter in our firm are billable hours – not dollars and billable hour reports are all that we have ever looked at when reviewing associate performance or partner contribution. We are now beginning to question the wisdom of this approach and we should be considering more than hours?

Response:

Billable hours alone is a poor indicator of associate or partner performance and you should include more measures/metrics in the analysis. More and more law firms today realize that partner contribution and value goes beyond and involves much more than “billable hours” and their compensation systems incorporate other factors into the analysis. Billable hours is just one metric in the overall equation. Many law firms focus on various measures of revenue dollars – fees billed, fees collected, etc. The next question is what kind of fee dollars – working attorney, responsible (managing) attorney, or originating attorney. Fees collected by working attorney seems to be the primary focus of smaller law firms. Origination (attorney that brought in the client) attorney fees collected is often part of the mix as well. Very seldom do we see responsible attorney fees collected considered. We believe that more firms need to include this measure as well.

As attorneys evolve from associates to partners – roles and responsibilities changes and so must the scorecard. If you want partners to build teams, delegate, and leverage the work of others – working attorney fees collected used by itself no longer makes sense. A measure of matter and team management is needed as well as a measure of individual production.

A focus totally on billable hours or working attorney fee collections places little, if any, emphasis on client origination, responsibility for matter management, or any other factors such a mentoring, associate management and training, marketing, and firm management which are critical to the long-term success of the firm.

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John W. Olmstead, MBA, Ph.D, CMC

Nov 17, 2010


Frustrations of a Law Firm Administrator

Question:

I am a law firm administrator with a 27 attorney firm in the southwest. This is my first law firm experience. I have been in my position for 8 months and am frustrated. Could you share your thoughts:

Response:

During the past decade the roles of legal administrators have expanded dramatically. Today legal administrators can be found in firms with less than ten attorneys. In larger firms, as well as many smaller firms, roles have shifted from day-to-day administration to firm wide leadership. A few large firm administrators are functioning as true CEOs. Large firm administrators are devoting more of their time and attention to strategic vs. administrative matters. Recent studies suggest that, in firms with more than 50 attorneys,there is an an uplifting of the role of principal administrators. Roles that have grown dramatically in recent years are strategic planning and practice management. Administrator’s roles in large law firms are no longer restricted to administrative matters. They are expanding and they include partner compensation, associate management, client and matter intake, lateral recruiting, and change management.

While administrators have made great strides in terms of role and acceptance during the past decade, administrators in firms of all sizes still remain frustrated with:

– Poor, slow, and ineffective decision making
– Ineffective firm leadership and governance
– Internal politics and infighting
– Micromanaging
– Management by committee
– Lack of influence and ability to effect change

Few things are as important to an administrator’s future as that person’s ability to influence the decision-making process and effect change.  Skills and competencies are important but so are results. In order to transcend to the next level and enhance their value to their law firms, administrators must help their firms actually effect positive changes and improvements and improve performance. This requires selling ideas to partners in the firm and having them accept and actually implemented. To succeed administrators must achieve three outcomes:

- Provide new solutions or methods
– The firm must achieve measurable improvement in its results by adopting the solutions
– The firm must be able to sustain the improvements over time.

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John W. Olmstead, MBA, Ph.D, CMC

Nov 10, 2010


Forming a Law Firm Management Committee and Other Committees

Question:

I am a partner in a 14 attorney firm. We have 9 partners and 5 associates. Currently, the firm is governed by all of the partners voting, usually just consensus, on all management decisions. We are thinking about going to a management committee. What suggestions do you have?

Response:

You have reached a size where it is counterproductive for all of the partners to be involved in every management decision. In a recent posting I discussed the difference between management and administration. Click here for the postThere should be a role for all partners in the management affairs of the firm (the partnership) but they do not need to be immersed in the day-to-day administrative concerns. Also, to what extent should a management committee be involved in administrivia.

Successful firms have a good governance and management structure in place and effectively manage the firm. A major problem facing many law firms is the lack of long range focus and the amount of partner time that is being spent on administrivia issues as opposed to higher level management.

A management committee may be the right direction if properly integrated with a governance/management plan for the firm. There is no "best approach" for structuring a law firm. However, keep in mind that there is still a role for the partnership at large and for your office manager or administrator as well. Here are a few ideas to get you started:

  1. Consider developing a governance plan. You should start by adopting a list of decisions which require a vote of the partners. Boundaries and roles should be established for the partners, the management committee, and the administrator or office manager. 
  2. Develop a charter (job description) for the partnership, the management committee, and the administrator or office manager.
  3. While partnership consenses should rule the day in most situations for matters for which are on the partnership's charter (job description), there will be times when a formal vote is required. Determine how voting rights will be handled. Each partner one vote or vote by partnership  interests? Different decisions – different voting requirements? Incorporate the list of decisions requiring a vote of the partners into your governance plan and into your firm agreements. Decisions on all other items can be made by the management committee and administrator/office manager.
  4. What constitutes a majority vote? Simple majority, two-thirds, three-fourths, unanimous vote, etc. Some firms have different requirements for different types of decisions.
  5. Who are the partners that get to vote – equity only or non-equity as well? Non-equity partners voting on certain decisions and not others?
  6. Once you create the charter for the management committee determine how many members will be on the committee, length of time, how members will be selected (elected or appointed), etc. I suggest that the firm elect a three member Management Committee for one-year terms initially and allow partners to serve successive terms. After the firm has been able to evaluate the success of the new structure, it may want to elect partners to the committee for staggered terms.
  7. One of the partners should be designated to chair the committee. Each of the other members may be assigned authority, responsibility and accountability for coordinating and/or performing specific functions. 
  8. The management committee should meet weekly, or if that isn't convenient, as frequently as required. To keep all of the partners apprised of issues before the management committee meeting is held, it is recommended that the meeting agenda be distributed to all partners within 48 hours prior to the scheduled meeting. Partners should be encouraged to discuss, with members of the executive committee, any items listed on the agenda or recommend subjects for discussion. Following this meeting, minutes should be prepared and distributed to all of the partners for information purposes.
  9. To keep all partners in the loop suggest quarterly partner meetings. 

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Click here for our blog postings on partnership and governance

John W. Olmstead, MBA, Ph.D, CMC

 

Nov 02, 2010


Getting Law Firm Partners Onboard

Question:

I am the managing partner of a 90 attorney firm in Chicago. We have 45 equity partners, 20 non-equity partners, and 25 associates. We have a three member executive committee as well as other committees in place in addition to the managing partner. Five years ago we formulated a strategic plan and have been attempting to successfully implement it since that time. We have had limited success. We don't seem to be able to get our partners "on board" with the actual implementation. I will tell you – I am truly herding cats here. Any ideas on how to get these guys and gals on board?

Response:

Getting your partners on board is always a challenge. The obstacles are almost too numerous to outline. Yet if law firms want to be successful in this turbulent environment they must embrace change and get their partners not only behind new strategies but often they must also be the ones to implement these strategies as well.

Managing lawyers in general is like herding cats. But trying to manage "star partners" is a real challenge. They are the "hitters" upon which a firm's future often depends. True star partners are:

  1. Building enduring client relationships
  2. Consistently performing up to their full potential
  3. Putting the firm first and implementing strategic imperatives

Star and other partners in the firm must continually balance their roles as producer, manager, and owner. Often, these roles may be in conflict. Also there are personal strategies and agendas as well.

Actually, I don't think they can be managed – but they can be led. There is a difference. But in order to accomplish this the following need to be well designed, in alignment and balanced:

Strategy

The personalities, emotions and needs of your partners constrain a firm's ability to design and implement strategy. Keep in mind that firm leadership cannot order the troops forward; instead the troops (partners) must essentially vote with their feet to pursue a new strategic direction. Absent a crisis, partners tend to stay on track and support only modest adjustments to strategy.

Organizational (Structure, Governance, HR Systems)

When organizational characteristics – structure, governance, and HR systems (recruiting, training and mentoring, performance management, and compensation) are aligned with the needs of the partners and the strategy of the firm, they create the conditions under which strategy can be implemented effectively. Matrix and team structures are the norm.  Collegial partnerships, consensus based governance, and leadership at the pleasure of the partners, rules the day. The cats have the power and the leader serves to a large extent at their pleasure.

  1. Look for ways to build consensus and create buy-in
  2. Involve all partners in major decisions – more than input – but a say
  3. Implement a first-rate partner performance management/review/evaluation system
  4. Review and insure that your compensation system is fostering alignment
  5. Provide as much transparency as possible
  6. Review your organizational structure

Culture

The firm's culture deals with its underlying core of beliefs and values, which shape the behavior of the firm. Nothing can weave new strategic and organization choices together and hold them in alignment better than culture. A strong culture can also provide enormous help in attracting, retaining and motivating stars. A strong culture is the glue that helps a firm overcome major obstacles, it can help foster major changes in strategy and or organization, and it can be a strong force for unity and coherence. 

  1. Work at building and managing the firm's culture.
  2. Recruiting, compensation, training, mentoring, performance management – should also be deployed to reinforce the firm's culture.
  3. Guard the firm's culture and keep in mind the impact that laterals, mergers, etc. might have upon it. 

Leadership 

As the firm's leaders you and the other leaders in the firm are serving at the pleasure of your partners. You are probably elected by them. Your positional power is limited – sort of like the President of the United States and the Congress. As a result exceptional leadership skills are needed and each of you must master the skills of building consensus and facilitating decisions so your partners will agree with and support them.

  1. Pick the right priorities
  2. Pick the right fights and fight the right battles
  3. Build support and coalitions through integrity and trust

For a good read on this subject – the book “Aligning the Stars” by Jay W. Lorsch and Thomas Tierney is an excellent resource.

Good luck! 

Click here for articles on other topics

Click here for our blog postings on partnership and governance

John W. Olmstead, MBA, Ph.D, CMC

 

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